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Tyson Foods Inc. and IBP Inc. came close in late March to renegotiating their merger for as much as $3 less per share than called for under their original January agreement. But in the end, the food industry giants were unable to agree on a new price. So testified Richard Bond, president and chief operating officer of IBP, Tuesday in the Delaware Chancery Court in the Tyson-IBP merger case. Under cross-examination by Anthony Clark of Skadden, Arps, Slate, Meagher & Flom, Bond said he began to suspect in mid-March that the deal was in trouble because the transition planning process had slowed. The IBP executive said he and Tyson Chairman John Tyson discussed the deal’s prospects March 26. Bond said Tyson told him his company never would have bid $30 per share for IBP had it realized the extent of the problems at IBP’s DFG subsidiary. Bond testified that Springdale, Ark.-based Tyson said those problems subtracted $1 to $1.25 per share from the meat packer’s value and the overall deal should be repriced at $27 to $28 a share. The DFG problems were minor, Bond said he told Tyson at the time, and worth 50 cents per share at most. “Based on these discussions, you believe that for the deal to go forward, it had to be repriced?” Clark asked. But Bond demurred, saying he still expected the merger with Tyson to proceed at $30 per share. An exasperated Clark pressed Bond on the question. “You didn’t say you’ve got a deal at $30 and we got to close at $30?” he asked. “You were willing to sit down with John Tyson or whoever at Tyson and see if that gap could be bridged.” Bond agreed. Tyson and Dakota Dunes, S.D.-based IBP signed a merger agreement Jan. 1. The deal was valued at $4.7 billion, including assumption of $1.5 billion of debt. Tyson terminated the deal March 29, saying in a lawsuit that it was illegally induced into submitting a bid. It charged that IBP improperly withheld information about problems at DFG and said IBP breached the merger contract because it was forced to restate financial reports to satisfy the U.S. Securities and Exchange Commission. IBP countersued, asking the court to compel Tyson to complete the merger. Much of the cross-examination centered on what happened at a Dec. 8 due diligence meeting in Sioux City, Iowa. Bond read a portion of the deposition transcript of IBP Chairman Robert Peterson, who said he described the DFG unit as a “big, black, ugly hole.” Peterson also reportedly said he would “hang the son of a bitch on Main Street at high noon” when he could prove that the former owner of DFG was responsible for the troubles. Clark questioned whether Peterson — and Bond’s confirmation of the story — were accurate. “Are you aware that there is not a single scrap of paper that would back up that story?” Clark asked. Is it reasonable to believe that IBP would tell Tyson of the major problems at DFG before the company disclosed the issue to its audit committee, the SEC or the investment community, Clark continued. Bond responded that IBP did not want to disclose the bigger DFG problems until it completed its investigation into the unit. Clark also questioned Bond about why it was not reasonable for Tyson to assume that IBP’s financial statements were correct. “You wouldn’t blame Tyson for believing those financial statements were true and correct,” Clark said. Also Tuesday, IBP Chief Financial Officer Larry Shipley, who coordinated all mergers for the company, testified that he fully disclosed all of the problems at DFG to Tyson and to Smithfield Foods Inc., both of which were bidding for IBP. “I said DFG was a mess and there wasn’t anything good to say about it,” Shipley said. “I told them the situation was dynamic.” Shipley also disputed the oft-repeated allegation that the SEC was investigating accounting practices at DFG. This charge stems from a letter the SEC faxed to IBP’s outside counsel Dec. 29. That letter was ignored by the counsel in the apparent belief that it only dealt with an aborted leveraged buyout. A copy of the fax arrived on Shipley’s desk Jan. 9. Of the 72 questions raised by the SEC, he said, only one deals directly with DFG. That single question relates to how IBP identified an initial $9 million charge taken to cover inventory issues at DFG. Rather, he said the letter dealt with broader reporting issues, some of which did impact DFG. Shipley also clarified why IBP agreed to restate earnings and concede to the SEC that the restatements were material. This matter is key because Tyson charges that IBP breached the merger agreement because it had guaranteed the material accuracy of its financial statements. By conceding to the SEC that the restatement was material, IBP believed it could expedite the agency’s investigation. That would permit the merger to close sooner, he said. Also, he said it should not have an impact on the merger agreement because IBP specifically included an exemption in the warranties for DFG problems, he said. The trial continues Wednesday. It is expected to include cross-examination of Shipley and testimony from an official at J.P. Morgan Chase and Peterson. Copyright (c)2001 TDD, LLC. All rights reserved.

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